FOMC Minutes, Fed Chair Powell, U.S. Jobs Data, Eurozone CPI: Macro Week Ahead

The Federal Reserve is back in focus for stock markets as traders guess whether rate cuts will come soon enough

• The euro may fall as Eurozone CPI inflation data beckons more ECB rate cuts.

• FOMC meeting minutes and Powell‘s speech may set the stage for markets.

• U.S. jobs data may be soft. What this means for stocks depends on the context.

Wall Street continued to struggle for lasting direction in last week’s trade. The bellwether S&P 500 shed 0.2%, having added a similarly meager 0.6% last week. The tech-oriented Nasdaq 100 slid 0.3% following a 0.2% rise. Gold prices were likewise listless. Absent another setback against the Japanese yen, the U.S. dollar was also quiet.

A “bear steepener” dynamic played out in the Treasury bond market: shorter-term yields were muted but longer-dated ones moved sharply higher. The 2- to 10-year yield spread widened at the fastest pace in six months. Such moves often imply concern about inflation and tighter future rates, though the priced-in Federal Reserve interest rate policy outlook was little changed.

A curious week is ahead. On one hand, the economic calendar is loaded with high-profile event risk. On the other, the Independence Day holiday will produce another mid-week market closure. This, alongside partial trading days for key exchanges on the days before and after the July 4 celebration will likely mean thin liquidity and choppy price action.

Against this backdrop, here are the macro waypoints likely to shape what comes next.

Eurozone consumer price index (CPI) data

Eurozone inflation is expected to cool to 2.5% year-on-year when June data is published this week. That would leave headline price growth within the 2.4-2.6% range it has occupied since February.

Last month’s shockingly disappointing purchasing managers index (PMI) numbers suggest growth has hit a wall after firming in the first half of the year following a shallow recession in late 2023. German CPI data out early this week already showed this putting more downward pressure on prices than expected, and region-wide results may follow suit.

For traders, such outcomes might mean greater scope for rate cuts from the European Central Bank (ECB), especially after a parliamentary election in France suggested scope for fiscal policy support has been diminished by political deadlock. On balance, that may bode ill for the euro and Eurozone stocks alike.

FOMC meeting minutes & Fed Chair Powell speech

The Federal Reserve is set to publish minutes from June’s fateful meeting of the Federal Open Markets Committee (FOMC). That sit-down produced an updated set of economic projections that slashed scope for stimulus while lifting the inflation forecast, making official the central bank’s “higher for longer” mindset on the path of interest rates.

Traders will be keen to learn whether officials factored in May’s consumer price index (CPI) data into their thinking. Published a day ahead of the Fed’s policy decision, it seemed to imply that disinflation is regaining momentum. As much has since appeared in the central bank’s favored personal consumption expenditure (PCE) price growth gauge.

This alongside comments from Fed Chair Jerome Powell at the annual ECB Forum on Central Banking in Sintra, Portugal, will be closely watched for a sense of whether U.S. authorities have grown more optimistic about hitting their inflation target in recent weeks. Risk appetite might flourish if that seems to be the case, and sour if not.

U.S. employment data

The economy added 180,000 jobs last month, while the unemployment rate remained unchanged at 4%, according to baseline forecasts. Such results would fall well within the narrow range of outcomes defining U.S. labor market conditions for over a year.

Analytics from Citigroup show that U.S. economic data outcomes have increasingly underperformed relative to expectations recently. In fact, the bank’s closely watched economic surprise index (ESI) now points to the widest margin of disappointment in 11 months.

This may tip the scales toward a greater likelihood of downside surprises when the jobs data hits the wires. If that occurs as the Fed appears to have become more confident about disinflation, stocks are likely to cheer as rate cuts seem closer at hand. However, risk appetite may crumble if soft data comes as officials remain reluctant to stimulate.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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